Page 67 - Small Business Taxes

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Disaster tax relief. For personal casualty qualified sick and family leave wages in 2022 You may be able to claim employment
losses resulting from federally declared disas- for leave taken after March 31, 2020, and be- TIP credits, such as the credits listed be-
ters that occurred before 2018, you may be en- fore October 1, 2021, are eligible to claim a low, if you meet certain requirements.
titled to disaster tax relief. As a result, you may credit for qualified sick and family leave wages You must reduce your deduction for employee
be required to figure your casualty loss differ- in 2022. For more information about the credit wages by the amount of employment credits
ently. For tax years beginning after 2017, casu- for qualified sick and family leave wages, go to that you claim. For more information about
alty and theft losses are allowed only to the ex- IRS.gov/PLC. these credits, see the instructions for the form
tent it is attributable to a federally declared on which the credit is claimed.
disaster. For more information, see Pub. 976, The COVID-19 related employee retention
Disaster Relief. credit has expired. The employee retention • Work opportunity credit (Form 5884).
credit enacted under the Coronavirus Aid, Re- • Empowerment zone employment credit
Partnerships and S corporations. If a part- lief, and Economic Security (CARES) Act and (Form 8844).
nership or S corporation carries on a amended and extended by the Taxpayer Cer- • Credit for employer differential wage pay-
not-for-profit activity, these limits apply at the tainty and Disaster Tax Relief Act of 2020 was ments (Form 8932).
partnership or S corporation level. They are re- limited to qualified wages paid after March 12, • Employer credit for paid family and medi-
flected in the individual shareholder's or part- 2020, and before July 1, 2021. The employee cal leave (Form 8994).
ner's distributive shares. retention credit under section 3134 of the Inter-
nal Revenue Code, as enacted by the ARP and
More than one activity. If you have several amended by the Infrastructure Investment and Topics
undertakings, each may be a separate activity Jobs Act, was limited to wages paid after June This chapter discusses:
or several undertakings may be combined. The 30, 2021, and before October 1, 2021, unless
following are the most significant facts and cir- the employer was a recovery startup business. • Tests for deducting pay
cumstances in making this determination. An employer that was a recovery startup busi- • Kinds of pay
• The degree of organizational and eco- ness could also claim the employee retention
nomic interrelationship of various under- credit for wages paid after September 30, 2021, Useful Items
takings. and before January 1, 2022. You may want to see:
• The business purpose that is (or might be) Credit for COBRA premium assistance pay-
served by carrying on the various under- ments is limited to periods of coverage be-
takings separately or together in a busi- ginning on or after April 1, 2021, through Publication
ness or investment setting. periods of coverage beginning on or before 15 15 Employer's Tax Guide
• The similarity of the undertakings. September 30, 2021. Section 9501 of the 15-A 15-A Employer's Supplemental Tax Guide
The IRS will generally accept your charac- ARP provides for COBRA premium assistance
terization if it is supported by facts and circum- in the form of a full reduction in the premium 15-B 15-B Employer's Tax Guide to Fringe
stances. otherwise payable by certain individuals and Benefits
If you are carrying on two or more dif- their families who elect COBRA continuation Form (and Instructions)
coverage due to a loss of coverage as the result
TIP ferent activities, keep the deductions of a reduction in hours or an involuntary termi-
and income from each one separate. nation of employment (assistance eligible indi- 1099-NEC 1099-NEC Nonemployee Compensation
Figure separately whether each is a viduals). This COBRA premium assistance is W-2 W-2 Wage and Tax Statement
not-for-profit activity. Then figure the limit on de- available for periods of coverage beginning on
ductions and losses separately for each activity or after April 1, 2021, through periods of cover- See chapter 12 for information about getting
that is not for profit. age beginning on or before September 30, publications and forms.
2021. A premium payee is entitled to the CO-
BRA premium assistance credit at the time an Tests for Deducting Pay
eligible individual elects coverage. Therefore,
due to the COBRA notice and election period
requirements (generally, employers have 60 To be deductible, your employees' pay must be
an ordinary and necessary business expense
2. days to provide notice and assistance eligible and you must pay or incur it. These and other
individuals have 60 days to elect coverage),
some employers may be eligible to claim the requirements that apply to all business expen-
COBRA premium assistance credit on employ- ses are explained in chapter 1.
Employees' Pay ment tax returns for the first quarter of 2022. In addition, the pay must meet both of the
Advance payment of COVID-19 credits following tests.
ended. Although you may pay qualified sick • Test 1. It must be reasonable.
• Test 2. It must be for services performed.
What's New and family leave wages in 2022 for leave taken The form or method of figuring the pay doesn't
after March 31, 2020, and before October 1,
2021, or provide COBRA premium assistance affect its deductibility. For example, bonuses
The COVID-19 related credit for qualified payments in 2022, you may no longer request and commissions based on sales or earnings,
sick and family leave wages is limited to an advance payment of any credit on Form and paid under an agreement made before the
leave taken after March 31, 2020, and be- 7200, Advance Payment of Employer Credits services were performed, are both deductible.
fore October 1, 2021. Generally, the credit Due to COVID-19.
for qualified sick and family leave wages, as Test 1—Reasonableness
enacted under the Families First Coronavirus
Response Act (FFCRA) and amended and ex- Introduction You must be able to prove that the pay is rea-
tended by the COVID-related Tax Relief Act of sonable. Whether the pay is reasonable de-
2020, for leave taken after March 31, 2020, and You can generally deduct the amount you pay pends on the circumstances that existed when
before April 1, 2021, and the credit for qualified your employees for the services they perform. you contracted for the services, not those that
sick and family leave wages under sections The pay may be in cash, property, or services. It exist when reasonableness is questioned. If the
3131, 3132, and 3133 of the Internal Revenue may include wages, salaries, bonuses, commis- pay is excessive, the excess pay is disallowed
Code, as enacted under the American Rescue sions, or other noncash compensation such as as a deduction.
Plan Act of 2021 (the ARP), for leave taken after vacation allowances and fringe benefits. For in-
March 31, 2021, and before October 1, 2021, formation about deducting employment taxes, Factors to consider. Determine the reasona-
have expired. However, employers that pay see chapter 5. bleness of pay by the facts and circumstances.
Page 8 Chapter 2 Employees' Pay